New Oregon economic forecaster predicts higher revenue, larger ‘kicker’ credit to taxpayers
(Update: More comments, details)
By Julia Shumway, Oregon Capital Chronicle
Oregon’s new chief state economist estimates the state will have about $37.8 billion available to spend in the next two-year budget cycle after reworking how the state calculates its economic forecast.
The state’s also on track to pay out a $1.8 billion kicker to taxpayers in 2026. But new chief economist Carl Riccadonna, a former Wall Street analyst hired in September, is changing the way Oregon models its expected revenue with an eye toward more accurate forecasts that reduce the amount returned to taxpayers through Oregon’s unique kicker law.
Riccadonna and senior economist Michael Kennedy presented their first quarterly forecast to lawmakers Wednesday and previewed some of their findings on a call with reporters Tuesday evening. Under the new forecast, lawmakers could have nearly $6 billion more to spend in the upcoming 2025-27 budget cycle compared to the last one.
Riccadonna’s hiring followed years of record kicker payouts. Oregon’s unique tax credit kicks in whenever income tax payments in a two-year budget cycle are at least 2% higher than budgeted, sending the excess back to taxpayers when they file state income taxes the following year.
The state has sent kicker payments every two years since 2016, including a jaw-dropping $5.6 billion to taxpayers who filed in 2024. The latest forecast estimates a 2026 kicker of $1.79 billion, up from $1 billion in the September forecast.
“My mandate joining DAS back in September was to really get to the bottom of what’s happening here, and so what my team has done is kind of deconstruct and reconstruct a lot of the forecast models to figure out what was happening,” Riccadonna said.
Riccadonna and Kennedy attributed the high kickers — and corresponding decrease in funds available to lawmakers — to flaws in former state economist Mark McMullen’s economic model. It was too pessimistic and didn’t treat the kicker as a tax liability, they said.
“If you look back, as the kicker gets bigger and that difference gets bigger, the errors get bigger,” Kennedy said. “You get this recursive effect where the errors are just going to get bigger and bigger as the kicker gets bigger, unless you go back to a world where liability in the model is really the real liability, and you don’t have this difference.”
Kennedy said the state’s prior revenue forecast model was also more pessimistic than necessary, including taking a national forecast provided by a vendor and adjusting it downward. That’s on top of what Riccadonna described as “pervasive pessimism” among economists that the post-pandemic economic boom would end in a recession, while he said it’s looking increasingly likely that Oregon and the country will instead have a soft landing — a gradual shift from high growth to a flatter economy.
Legislative leaders, governor react
The forecast estimates lawmakers will be able to spend up to $37.8 billion in the 2025-27 budget, well above the $31.9 billion general fund budget they approved in 2023. Gov. Tina Kotek is working on her budget proposal for lawmakers, who will spend the first six months of 2025 negotiating in public and private to pass a spending plan.
Democratic legislative leaders and Kotek welcomed the new forecast, saying it proved the state’s economy remains strong and resilient. But they also noted that the state still faces a difficult budget cycle, without the federal COVID relief money that provided a buffer in recent years and with a transportation funding deficit and uncertainty at the federal level.
“While this positive economic forecast is welcome news and makes the start of the legislative budgeting process a little easier, we are still entering into a very tight budget cycle,” said Senate President Rob Wagner, D-Lake Oswego. “Current critical services must be maintained and legislators will need to make smart choices about how to sustain prior one-time investments to address the important needs facing every corner of Oregon.”
During a press conference with tribal leaders Wednesday, Kotek said changes to how the state models revenue will help with stability in future years.
“I think the truing up of the calculation of the new chief economist is really going to be helpful to provide stability when we’re trying to do budgeting every two years, and I think his assumptions around the recalculations made a lot of sense to me,” she said.
Republicans, meanwhile, expressed concerns about lower kicker payments if the state more accurately models revenue.
“The kicker is the people’s money, and it should remain so,” said Sen. Lynn Findley, R-Vale and a member of the Senate Finance and Revenue Committee. “While this biennium’s kicker appears secure, changes to the revenue model could lead to smaller refunds in the future, and we need to ensure taxpayers are treated fairly.”
House Speaker Julie Fahey, D-Eugene, said state economists have an obligation to accurately estimate revenue levels.
“Although the current forecast is strong and our reserves are healthy, potential changes at the federal level create uncertainty,” she said. “Oregonians should know that even if there is instability at the federal level, here in Oregon there are responsible, focused leaders who will be steady hands at the wheel. We are prepared to use available resources to deliver on what Oregonians need most.”
And incoming House Minority Leader Christine Drazan, D-Canby, said while the state budget might be doing well, family budgets are still stretched thin from years of inflation.
“Besides plenty of general fund revenues to pay for critical services, the state has deep reserves and an ending balance of over $2.7 billion,” she said. “This is a lot of money from Oregonians, for government to use wisely, to meet its duty to Oregonians themselves. It’s time for government to do its part by improving efficiency, strengthening transparency and providing excellent service. This is not the time for politicians to ignore agency failures, and then push new fees or increased taxes.”
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DAS Office of Economic Analysis Presents the December Revenue Forecast
State of Oregon - 11/20/24 8:39 AM
With changes in the national economic outlook, Oregon is moving toward a soft landing.
Salem, OR – Carl Riccadonna, state chief economist at the Department of Administrative Services (DAS) and head of the Office of Economic Analysis (OEA), presented the latest revenue forecast to a joint meeting of the Oregon Legislative Revenue Committees. The quarterly revenue forecasts serve to open the revenue forecasting process to public review and is the basis for much of the Oregon state government budgeting process.
The Office of Economic Analysis provides quarterly forecasts for the State of Oregon’s major revenue sources, including all sources contributing to the General Fund (Personal and Corporate Income Tax, etc.), Lottery and the Corporate Activity Tax. In May of odd years, OEA’s revenue forecast establishes the resource levels for the next biennium’s adopted budget.
What is different about this forecast?
The revenue forecast presented in today’s committee begins with a modified analytical approach. Carl Riccadonna and his team reviewed the methodology and outcomes of the revenue forecast over several recent biennia to identify potential sources of error. The past forecasts ultimately deviated significantly from actual tax collections, as shown in figure 1.
The Nov. 20 forecast reflects methodological adjustments that result in immediate increases to the forecast. The reason for these methodology changes is because the historic forecast errors have increased in magnitude and shown a persistent bias since 2009. OEA’s adjustments are expected to address these issues.
The Office of Economic Analysis has made two main adjustments:
- Reconstruction of the Personal Income Tax model to reflect true tax liability and collections. As part of this change, modeling of the kicker impact was more intrinsically incorporated into the model. This will eliminate a false signal of weakness in current tax year collections
- Tighter alignment between the Oregon revenue forecast assumptions and the larger, national economic trends.
The intent of these changes is to reduce future forecast error and align income tax forecasts with economic assumptions.
The results
The December revenue forecast projects the 2023-25 General Fund ending balance to be $2.79 billion, with revenues increasing by $945 million since the September forecast.
In the 2025-27 biennium, General Fund available resources are forecast to increase by $2.27 billion, and revenues increasing by $1.3 billion from the September forecast. This results in a total of $37.8 billion projected available resources.
About the Office of Economic Analysis
The state chief economist oversees the Office of Economic Analysis within the Department of Administrative Services and provides objective forecasts of the state’s economy, revenue, populations, corrections population and Youth Authority population. These forecasts are used across state government, and by the public for a variety of reasons, notably to inform the state budgeting process. For more information about the Office of Economic Analysis and recent forecasts visit https://www.oregon.gov/das/oea/pages/index.aspx.
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Governor Kotek Issues Statement in Response to December Revenue Forecast: Stay the Course
Salem, OR - Today, Governor Tina Kotek issued a statement in response to the December revenue forecast:
“This forecast calls for state leaders to stay the course on core programs and act strategically on issues of top concern for Oregonians. While Oregon’s economy is strong, unknown federal impacts are on the horizon. We must build on the progress we’ve made on housing and homelessness, behavioral health and education while fighting to protect Oregon values. These challenges don’t lend themselves to quick fixes or short cuts, and real progress requires persistence and focus.
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Senate Republicans Raise Concerns Over Revenue Model Changes and Future Kicker Refunds
SALEM, Ore. – Senate Republicans expressed concerns following the December 2024 Economic and Revenue Forecast, questioning whether recent changes to the state’s revenue model could impact future kicker refunds. While the 2023-25 kicker remains intact, Republicans are wary of adjustments that may reduce refunds in the years ahead.
“This forecast raises important questions about the accuracy of these projections and their potential impact on taxpayers,” said Senate Republican Leader Daniel Bonham (R-The Dalles). “Oregonians deserve transparency to ensure the system works for them, not just for government budgets.”
Over the past decade, the kicker has returned more than $11 billion to taxpayers, providing meaningful relief for families across the state. Senate Republicans stressed the importance of preserving this mechanism, which holds government accountable and keeps funds in the hands of Oregonians.
“The kicker is the people’s money, and it should remain so,” said Senator Lynn Findley (R-Vale), a member of the Senate Finance and Revenue Committee. “While this biennium’s kicker appears secure, changes to the revenue model could lead to smaller refunds in the future, and we need to ensure taxpayers are treated fairly.”
Republicans also noted ongoing challenges in Oregon’s economy, including a recession in the manufacturing sector—a key source of high-paying jobs—and slowing population growth. They called for greater focus on policies that support economic recovery and workforce development.
“Oregon faces real economic challenges, and we need to prioritize solutions that strengthen our economy and benefit families across the state,” Bonham said. “We remain committed to protecting the kicker and ensuring taxpayers receive the refunds they rightfully deserve, both now and in the years ahead.”
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Positive Economic Forecast Sets Table for Productive Budget Conversations
SALEM, Ore. – Today, the Oregon Office of Economic Analysis released and presented to state legislators its December 2024 revenue forecast and economic outlook.
Senate President Rob Wagner (D-Lake Oswego) is releasing the following statement:
"Thanks to Oregon's workers, our economy remains strong and resilient, with chances of an economic downturn remaining small. While this positive economic forecast is welcome news and makes the start of the legislative budgeting process a little easier, we are still entering into a very tight budget cycle. Current critical services must be maintained and legislators will need to make smart choices about how to sustain prior one-time investments to address the important needs facing every corner of Oregon."
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Speaker Fahey Releases Statement on Strong November Revenue Forecast
SALEM, Ore. – Today, House Speaker Julie Fahey (D-West Eugene, Veneta) issued the following statement on the November Revenue Forecast released this morning by the Oregon Office of Economic Analysis:
"Today’s Economic and Revenue Forecast indicates that Oregon’s economy is strong and the worries of a recession have subsided. A healthy economy means we can continue delivering for working families and maintain critical investments in priorities like housing, addiction treatment, and public safety.
“The state economists have an obligation to accurately estimate revenue levels so that the legislature can invest in key services that Oregonians rely on. With this forecast heading into the upcoming legislative session, the legislature now has the information it needs to begin crafting a balanced budget that funds Oregonians’ top priorities.
“Although the current forecast is strong and our reserves are healthy, potential changes at the federal level create uncertainty. Oregonians should know that even if there is instability at the federal level, here in Oregon there are responsible, focused leaders who will be steady hands at the wheel. We are prepared to use available resources to deliver on what Oregonians need most.”
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Majority Leader Bowman Releases Statement on Strong November Revenue Forecast
SALEM, Ore. – Today,House Majority Leader Ben Bowman (D-Tigard, Metzger, & S. Beaverton) issued the following statement on the November Revenue Forecast released this morning by the Oregon Office of Economic Analysis:
“Based on today’s strong forecast, we’re seeing projected job growth and healthy reserves that will position us well to withstand economic downturns in the future. At the same time, giant corporations continue to generate significant profits while working families are feeling the pinch of everyday expenses. In the upcoming session, we will work to make every aspect of life more affordable in Oregon, from housing and health care, to childcare and utilities.”
Rep. Bowman also passed along his appreciation for all of the hard work from the Office of Economic Analysis, including incoming economists Carl Riccadonna and Michael Kennedy.
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DRAZAN STATEMENT ON REVENUE FORECAST
SALEM, OR – In response to today’s revenue forecast, House Republican Leader Christine Drazan (R-Canby) offered the following statement.
“Today’s revenue forecast paints a rosy picture for the state budget, but we know that many family budgets are still stretched thin from years of inflation,” said Leader Drazan. “Besides plenty of General Fund revenues to pay for critical services, the state has deep reserves and an ending balance of over $2.7 billion. This is a lot of money from Oregonians, for government to use wisely, to meet its duty to Oregonians themselves. It’s time for government to do its part by improving efficiency, strengthening transparency and providing excellent service. This is not the time for politicians to ignore agency failures, and then push new fees or increased taxes.
House Republicans care about meeting the needs of Oregonians and defending their family budgets. We look forward to working together for effective government, agency accountability and a balanced budget that prioritizes Oregonians.”
